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Executive Summary

With its proposed purchase of A.H. Robins for over $ 3 bil., American Home Products commits to three times what it has already spent on healthcare acquisitions in the past five years. AHP has bought six health businesses for a total of over $ 1 bil. ($ 1,023 mil.) since 1982, according to the recently filed A.H. Robins/AHP merger plan. AHP's acquisitions include the 1982 purchase of Sherwood Medical Group, a medical supply manufacturer, for $ 425 mil. In 1986, the firm bought the Chese-Pond's Hospital Products Division for $ 260 mil., and the Quantum Pharmics generic drug business for about $ 27 mil. Three purchases were completed in 1987: Sanofi's minority interest in Wyeth-Byla, AHP's French drug subsidiary, for about $ 170 mil.; contraceptive product manufacturer VLI Corp., for $ 78 mil.; and the German drug firm EFEKA, for $ 63 mil. During the same period, divestitures of three food and household products businesses brought in about $ 1.2 bil. The 1984 sale of the Ekco Housewares Division brought AHP $ 338.2 mil. in cash and notes and $ 10 mil. in convertible preferred stock. Two years later, AHP divested its E.J. Brach confectionary subsidiary and its Household Research group for $ 730 mil. and approximately $ 115 mil., respectively. The AHP merger proposal was part of Robins' fourth amended Chapter 11 reorganization plan, filed in Richmond federal court on Feb. 1. A March 10 hearing on the proposal has been scheduled. The merger plan notes AHP's "intention" to keep a substantial part of the Robins operations in Richmond, but maintains that the expression of intent is non-binding. The plan states: "AHP recognizes the importance of the surviving corporation to the Richmond, Va. community and intends to maintain a substantial presence in the city of Richmond." Nevertheless, the plan continues: "Although the foregoing represents a reflection of the intention of the parties . . . it is not intended in any way to impose a legal commitment . . . to maintain such presence for a specified period of time nor is it intended to make any third party a beneficiary of such intention or give any such third party rights against AHP or the surviving corporation as a result thereof." The plan does not specifically address whether Robins' current management will be changed significantly after the merger, noting only that a transitional management team will be appointed with representatives from both companies. The plan details contributions to the Dalkon Shield claimants trust funds by Robins senior management and from Aetna Life & Casualty. Under the proposal, which has the support of the claimants committee, Robins Chairman E. Claiborne Robins and President and CEO E. Claiborne Robins Jr. will pay a total of $ 10 mil. to the trust funds. With the payment, the two execs will be released from future personal liability. Aetna will contribute a total of $ 100 mil. AHP has agreed to pay Aetna $ 25 mil. as a premium on insurance policies for the trust funds that could provide an additional $ 250 mil. for the funds, if needed. The merger, involving a stock swap with a value of $ 700 mil. to Robins shareholders, will conclude with the Robins family owning approximately 2% of AHP's common stock, according to the plan. In support of the merger, Robins maintains in the proposal that liquidation of the company "would afford unsecured creditors, including all holders of unliquidated claims, only a partial recovery of 61%." The disclosure statement puts the company's liquidation value at $ 2-$ 2.7 bil.